Country Forecast India September 2017 Updater

Country Forecast India September 2017 Updater

  • September 2017 •
  • Report ID: 1698605 •
  • Format: PDF


  • The National Democratic Alliance (NDA, a centre-right pan-Indian coalition of parties led by the Bharatiya Janata Party) will retain its dominance over the political landscape in 2017-21. The Economist Intelligence Unit forecasts that the NDA will secure a second five-year term at parliamentary elections in 2019.
  • As India's economic clout grows, its foreign policy stance will become increasingly assertive, particularly in South Asia. Its relations with the US and Japan will improve owing to an alignment of strategic interests. By contrast, ties with Pakistan will remain tense and weigh on India's relations with China.
  • The pace of progress on enhancing the business environment will be uneven. The NDA will record its biggest policy successes in improving physical infrastructure and transforming India's macroeconomic fundamentals. Progress in contentious areas such as land and labour reforms will be limited.
  • Improved tax administration and the introduction of the nationwide goods and services tax (GST) in 2017 will expand the tax net. However, rising spending on social services, infrastructure and rural assistance will limit the government's ability to reduce the fiscal deficit further. We expect the budget shortfall to average 3.1% of GDP in fiscal years 2017/18-2021/22 (April-March).
  • Real GDP growth will average 7.7% a year in 2017/18-2021/22, largely driven by private consumption and infrastructure investment. Private-sector investment will initially be held back by a corporate-debt overhang but will then accelerate as the authorities implement a resolution mechanism to deal with distressed assets in the banking system, and as the business environment improves.
  • We expect consumer price inflation to average 4.2% a year in 2017-21. This will be within the 2-6% inflation target range of the Reserve Bank of India (the central bank). However, inflation will remain sensitive to changes in food and oil prices, which have a weighting of 60% in the consumer price index.
  • The inflation differential with the US and competitive pressures will result in a gradual depreciation of the rupee over 2017-21. We expect the rupee to weaken from an average of Rs65.2:US$1 in 2017 to Rs72.1:US$1 by 2021.
  • The current account will remain in deficit, largely owing to a persistent trade shortfall. However, low commodity prices will keep the current-account deficit contained, at the equivalent of 1.4% of GDP on average in 2017-21.


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